The vote by the British electorate to leave the EU will generate a short-term 'Brexit bubble' and then a 'two-speed' London property market could emerge, according to Peter Wetherell, CEO of London-based residential agent Wetherell.
'This decision to leave has opened up a Pandora's Box as far as the London property market is concerned,' Wetherell said. 'The end result of this descision to exit the EU could be a two-speed London property market – with just the core West End, and the periphery (homes priced below £400,000) continuing to operate; but with stagnation across the West, North and East London sectors of the market.'
Wetherell pointed out that since the referendum result was announced earlier today sterling has already plummeted to a low not seen since 1985. 'This will now create a short-term buying opportunity for US dollar and euro based property investors. For overseas buyers, this big and dramatic drop in the value of sterling will effectively offset the stamp duty and tax adjustments and it will make prime London property a lucrative investment for overseas investors bold enough to take a punt despite the market uncertainty.'
He added that the London market was for risk takers and people able to spot high risk, but potentially lucrative opportunities that have emerged overnight due to the fluxes in the markets. 'Dollar based Middle East and Asian investors in particular will now wake up this morning and look at short-term buying opportunities in the Central London property market and look at acquiring residential property priced up to £6 million. Already this morning I've had so many enquiries from clients about the implications for the London property market and I expect my phone to be extremely active today from my clients from both the UK and overseas about whats happened.'
Bold and decisive action needed
Earlier today prime minister David Cameron announced he has stepped down following the referendum result in favour of a Brexit. The new prime minister, chancellor and governor of the Bank of England will now need to act 'boldly and decisively' to stop this exit from the EU from potentially leading to a ‘two-speed’ London property market, Wetherell warned.
'In order to protect the long-term interests of the London property market the prime minister and chancellor will urgently need to review StampDutyLT adjustments and also seriously consider reversals of the various tax changes that have already challenged the Central London market over the last few years.'
Wetherell said he took heart from how London had responded to the banking crash of 2008. 'Central London developers sought out overseas investment to plug the development finance hole when the banks withdrew debt. That shows just how robust and agile the London property market is when faced with major challenges. After the last global recession overseas investors and London’s developers worked together and should be applauded for finding the resources to continue developments and the success of London. So since its been done once before, I have every confidence that the London property market is strong, robust and able to rise to challenges.'
That said, industry construction costs could rise by up to 15% following Brexit since construction materials currently imported from and exported to the EU are free of duty and taxes. 'Many site/construction staff working in London are people who originate from countries across the EU the future of all of this will need to be looked at quickly and decisively.'
Status as financial capital under threat
London's status as the financial capital of Europe could now also be under threat, he added. 'Currently London is able to provide financial services to the EU; the future of all of this could now be put into question as the UK leaves the EU.'
No less than 39% of London’s population of 8.66 million people were not born in the UK, Wetherell pointed out. 'For Mayfair and the West End, some 55% of the market is based on non-EU overseas buyers who are from the Middle East, India, Russia and Africa. The West End is far less reliant on the EU, so it will continue, maybe at a lower volume or maybe at a higher volume; dependent on volatility in local political markets around the world.
'However in West London and Inner North London where there are high levels of EU buyers there could now be a dramatic slowdown which could last for a number of years. The more commercial property dominated markets of the City of London and Canary Wharf/Docklands could be really damaged by this exit from the EU, with a flight of capital, companies, jobs and workers.
'These issues in West and East London might be a short-term problem or a long-term issue; dependent on the strength of the financial markets in the City of London to continue and cement the City as the financial centre of the world.'
